which must be renegotiated every few years to market rates. This impacts ten-ants in affected properties with diminish-

ing rent rolls.W h i l e

interest rates are relatively low, based on historic standards, the qualifications to refinance the mortgage may increase. Recessionary p r e s s u r e s on business-es have led landlords to reduce their effective rents. These lower rent rolls may result in some l a n d l o r d s being unable to qualify to refinance their existing

mortgages. This unanticipated “cash call” may have some of the weaker landlords scrambling for capital at a time they can least afford it.

The caveat is that opportunities in this economy may vary from market to mar-ket and building to building.

Some landlords—generally those with stronger portfolios—are better positioned to do what it takes to keep tenants. They

1Real EstateStrategies

Landlords also see the downward pres-sure on their tenants. It is no secret that tenants continue to face dwindling markets, stock prices crashing and their busi-ness horizons in doubt!

Many indus-try experts wonder if the commer-cial market is due for a crash. While few predict a downturn of the magnitude of the recent debacle in residential real estate, the pain for many land-lords already is real and there is no better time to try to:• N e g o t i a t e

better lease terms for your present lease

• Upgrade to better quality space by moving to another building

• Reduce or expand your space at advan-tageous terms

Bank Crisis Impacts R.E.The banking crisis already is having

its effects on those landlords who have reached the “reset” on their non-amor-tizing balloon commercial mortgages,

I s s u e X X V I

T ens of thousands of businesses can significantly reduce their office rents right now.

This is not a government program, so please don’t call them.

To be eligible, you have to be:1. A tenant in good standing2. Creditworthy3. Have a lease that terminates in

the next two to three years4. Be willing to take advantage of a

tenant’s market to trim overheadSince landlords

are under pressure to keep their buildings filled with quality tenants, it is possible to approach the land-lord, and in exchange for extending your lease, you may be able to obtain lower

rent, a rent concession, work space improvements, better lease clauses, a new tax base and more.

How?Convince the landlord you are seri-

ous about leaving.Nothing says “I really can move to

another building” more effectively than retaining a tenant representative who knows how to take advantage of current market conditions.

A tenant rep will analyze your existing lease, while lining up com-petitive space offers in other build-ings. This positions you and your tenant rep to approach your present landlord with negotiating leverage.

When your landlord realizes you and your tenant rep have done your homework, and sees the competing offers, chances are, they’ll be quick to make you an offer you can’t refuse. Continued on page 5

For Tenants, It’s a Great Time To Negotiate Better Lease Terms

B y L a w r e n c e D i c k s t e i n

P r e s i D e n t & c e Oitra / Dickstein reaL estate services, BriDgewater, nJ

It’s ATenant’s Market:Take Advantage!

GOOD news! nOw is the Best time in the Last 20 years to be a tenant. The commercial real estate market is a slow

motion train wreck—and the landlords see it coming.

I s s u e X X V I

The S tevens Group | Bos ton

Debra Stevens

transaction are pension funds, insur-ance companies and other investment groups. These institutions have a longer investment horizon than many inves-tors. They have cash and want a high grade, safe investment. They will accept a lower ROI (return-on-investment) in return for a low risk investment. The company’s lease provides the buyer steady cash flow, and the long term appreciation of the property provides them a hedge against inflation.

Why Corporations Do Sale/Leasebacks

One of the critical questions for the corporation to ask is, does the rent

Real EstateStrategies2 I s s u e X X V I

At a time when banks are not lend-ing, the sale/leaseback is not only the most efficient option for improving the balance sheet and raising cash, it may be the only option.

A sale/leaseback transaction allows you to: • Reinvest in

your business • Retire debt • Improve credit

rating• Increase productivity • Make an acquisition • Get a better return on

capital investment • Avoid negative impact from

depreciation on the financial statementThus the sale/leaseback solu-

tion allows your company to sell its property and get it off the books while avoiding the costs and disruption of moving. And the long term lease keeps your occupancy costs under control.

Of course, there’s nothing really new or exciting about a sale/leaseback. They’ve been around for decades. So if you like things that are predictable and boring and don’t blow up, read on!

Over the years, sale/leasebacks have helped many companies achieve liquid-ity, especially in times where credit is tight and cash is scarce. Another benefit is that it takes a company out of the real estate business, which for many firms is a distraction, and allows greater focus on the core business area.

So the next question should be, “who in these cash starved times would buy a building and lease it back to a credit worthy tenant?”

The target buyers in a sale/leaseback

paid, plus the loss of depreciation and residual value, outweigh the advantages of receiving the net cash proceeds from the sale? If a company wishes to show increased productivity, the sale/leaseback could be very helpful.

Many corporations measure their productivity by calculating a

return on assets. A sale/leaseback transaction

may allow the corpo-ration to reduce the assets shown on their balance sheet. The corporation’s rate of return (earn-ings divided by assets), increases if

the denominator (the assets), decline.Sale/leasebacks also

provide an opportunity to maintain operating control of

the property as if it were still owned by the corporation.

What Buyers Look For

Buyers have three principal goals:1. Secure cash flow through

rent from the leasing corporation

2. Take advantage of any property ownership tax benefits

3. Long term property appreciation

The stronger the credit of the seller/lessee and the better the property, the more negotiating leverage the seller/lessee has. Part of your ITRA broker’s responsibility is to find the correct buyer based on the property and the seller’s credit.

Buyer/lessors want properties with strong residual value potential—that is, a wide range of appeal to many cor-porate type users and located on very marketable sites. Preference is given to free-standing, single-user office, ware-

Over the years, sale/leasebacks have helped many companies achieve

liquidity, especially in times where credit is tight and cash is scarce.

Continued on page 5

Sale/Leasebacks:

Financing a Healthier Balance Sheet B y r O n a L D r . P O L L i n a , P h . D .

P r e s i D e n t

itra / PO L L i na cO r P O r at e re a L es tat e, ch i c ag O, iL, Usa

I f yOUr cOmPany has a gOOD creDit rating, Owns anD occupies its office or industrial properties, it may benefit

from a sale/leaseback transaction especially because of the current global economic malaise.

Two sister technology companies with different space requirements based in two separate buildings

sought to place their respective North American headquarters under the same roof, in adjoining space on the same floor. This

was the challenge suc-cessfully met by Stuart Holcombe,

CCIM, Principal of ITRA/Corporate Real Estate Advisors in Atlanta.

Mr. Holcombe represented Stibo Systems (www.stibosystems.com) a leading global provider of product information management

(PIM) and master data management (MDM) solutions, and CCI Europe (CCI) (www.ccieurope.com), which

develops and supplies cross-media solutions in partnerships with newspaper publishers.

Working closely with Stibo President Andreas Lorenzen, and Carsten Boe Jensen, the President of CCI, US, Mr. Holcombe located space that fit each company’s needs, enabling them to share common resources. Each could still maintain their separate iden-tities, separate leases, and separate reception areas in their separate spaces.

Their space requirements were quite different:• Stibo previously had 8555 rentable

square feet (RSF) in a Class B+ property but wanted to expand to approximately 13,000 RSF in a Class A property.

• CCI had 8274 RSF, but would not move unless they could find a lease agreement with better terms. Their new, more effi-ciently designed Class A space accommo-dated their requirements with only 7196 RSF at a lower rental rate. ITRA’s Mr. Holcombe leveraged his block

negotiating power with the landlord, obtain-ing for both tenants higher tenant improve-ment finishes, significant rental savings and no escalations on the rate for four years on a five-year term. By placing the escalations in the final year of the lease, the companies’ base rent will have a lower reset at the end of the lease—another huge savings.

“Stuart Holcombe not only used his nego-tiating skill to save our company money up front, but far down the road as well,” says Stibo President Andreas Lorenzen. “The needs of both Stibo and CCI were met indi-vidually and together while we also upgraded our space, thanks to his dedicated efforts.”

Office, Industrial and Retail Facilities

• Regional, National, International Headquarters

• Research & Development• Life Sciences• Warehouse / Distribution• Manufacturing

Real EstateMarket Analysis

• Acquisitions• Dispositions• Lease Renewals

Negotiations

• Proposals• Leases• Dispositions• Acquisition Contracts• State & Local Incentives• Sale / Leasebacks• Work Letters• Operating Expense

& Taxes Audits• Architectural Engineering

Contracts• Developer Agreements

State & LocalIncentive Negotiations

• Statutory and Negotiated Incentives

• Cash Grants• Infrastructure• Tax credits and Abatements• Workforce Grants and Training• Subsidized Land and

Building Costs

Lease Management

• Lease Abstracting• Financial Reports• Tax & Operating Expenses

ITRA Success Story:

2 Companies With 2 Different Needs Relocate North America HQ’s

Together

Strategic Planning

• Model Development• Acquisition/Consolidation Analysis• Policies & Procedures Manuals• Space Planning

Location Analysis

• Labor Market Analysis• Transportation Costs• Utility Costs & Availability• Quality of Life• Taxation• Market Accessibility

Financial Analysis

• Buy vs. Lease• Build-to-Suit• Equity Participation• Sale / Leasebacks

Surplus Property Analysis

• Marketability• Highest & Best Use• Disposition Strategies

Project Management

• Needs Assessment• Project Budget Management• Selection and Oversight of

Design Team, Contractors and Vendors

• Move Coordination

3Real EstateStrategiesI s s u e X X V I

The

Advantage

North America Second Quarter 2009 CITY TOTAL SQUARE FEET VACANCY AVAILABLE SPACE AVERAGE RENT

1 Atlanta 226.4M 16.0% 36.7M $20.47 2 Austin 42.2M 17.6% 7.4M $26.04 3 Baltimore 97.6M 13.0% 12.7M $22.24 4 Boston 76.2M 9.2% 7.0M $37.98 5 Charlotte 62.5M 13.6% 8.5M $20.55 6 Chicago 306.0M 18.6% 56.9M $25.00 7 Colorado Springs 27.3M 17.0% 4.6M $19.15 8 Dallas 196.8M 22.0% 54.1M $18.98 9 Denver/Boulder 142.3M 20.1% 28.6M $21.57 10 Fairfield County, CT 48.5M 11.0% 10.2M $31.85 11 Ft. Lauderdale/W. Palm Beach 89.4M 18.0% 18.5M $24.80 12 Houston 214.3M 14.3% 30.7M $23.85 13 Las Vegas 48.4M 19.0% 9.4M $24.69 14 Long Island 102M 10.0% 10.1M $27.64 15 Los Angeles 420M 11.0% 45.0M $30.48 16 Miami 44.2M 15.0% 7.7M $28.64 17 Minneapolis 128.7M 10.6% 13.6M $16.67 18 Nashville 29.9M 11.2% 3.7M $19.27 19 New Jersey 259.5M 19.0% 51.1M $25.64 20 New York City - Downtown 158.0M 10.0% 35.0M $45.08 21 New York City - Midtown 349.0M 14.0% 49.5M $54.75 22 Norfolk 35.4M 11.0% 5.3M $18.99 23 Orange County, CA 122.9M 15.9% 19.5M $27.15 24 Orlando 64.4M 14.9% 9.6M $23.99 25 Philadelphia 94.5M 18.0% 17.4M $26.05 26 Phoenix 128.8M 22.6% 34.0M $25.06 27 Pittsburgh 95.9M 11.3% 10.8M $18.81 28 Portland 66.6M 12.0% 10.1M $21.17 29 Richmond 56.9M 10.5% 6.0M $17.14 30 Salt Lake City 65.3M 9.8% 9.8M $17.54 31 San Diego 81.5M 18.4% 15.0M $30.18 32 San Francisco 90.2M 13.4% 12.1M $29.64 33 San Juan, PR 15.1M 18.8% 2.8M $27.80 34 Seattle 136.3M 12.2% 16.6M $27.58 35 Silicon Valley 88.2M 16.1% 14.0M $29.40 36 Spokane 16.9M 10.4% 1.8M $16.50 37 St. Louis 87.5M 12.2% 10.7M $19.01 38 Tampa 43.2M 17.0% 8.3M $25.02 39 Tucson 16.5M 13.0% 2.3M $20.09 40 Washington, D.C. Metro 436.3M 12.8% 55.8M D.C.: $47.15/Metro: $33.31 41 Westchester County, NY 35.5M 12.5% 6.4M $29.02

London Second Quarter 2009 DISTRICTS TAKE UP GRADE A VACANCY PRIME YIELD PRIME RENT42 London (WE) CBD 0.7 million sq ft 7.4% 5.50% £80.00 per sq ft 43 City 0.7 million sq ft 10.0% 6.75% £43.00 per sq ft 44 Docklands 0.38 million sq ft 6.1% N/A £35.00 per sq ft

“Take Up” -- Space absorbed in the previous quarter / “Grade A Vacancy” -- Available Space / “GBP” -- British Pounds Disclaimer: This survey contains information from sources deemed to be reliable and accurate. However, we make no representation, warranty or guaranty of its accuracy.

Asia Second Quarter 2009 CITY/COUNTRY Total Stock (Sq. Ft.) Class A Space Average Rent (US$/Sq.Ft./Year) Change of Average Rent from Prior Year

45 Bangalore, India 32M $34.46 101% 46 Mumbai, India - Nariman Point 23.5M $131 -21% 47 New Delhi, India - CBD 33.2M $86.94 -37% 48 Beijing, China - CBD 148M $49 9.80% 49 Hong Kong, China 49M $85 -4% 50 Shanghai, China - Pudong 38.4M $65.22 5.50% 51 Tokyo, Japan 661M $164.99 46% 52 Taipei, Taiwan 17.3M $42 49% 53 Seoul, South Korea 69.1M $54.18 27% 54 Singapore, Singapore 46.1M $82.79 -29.80% 55 Jakarta, Indonesia 38.7M $13.16 9.50%

Australia Second Quarter 2009 CITY/COUNTRY Total Stock (Sq. Ft.) Class A Space Average Rent (US$/Sq.Ft./Year) Change of Average Rent from Prior Year

56 Melbourne, Australia - CDB 39.6M $27.73 -53% 57 Sydney, Australia 51.1M $42.35 -14%

Latin America Second Quarter 2009 CITY/COUNTRY Total Stock (Sq. Ft.) Class A Space Average Rent (US$/Sq.Ft./Year) Change of Average Rent from Prior Year

58 Sao Paulo, Brazil 24M $57.74 10%

Real EstateStrategies4 I s s u e X X V I

Office Markets Survey

his market are literally tripping all over themselves to compete for credit ten-ants. Mr. Rosen started a search for a client for new space in the Downtown CBD many months ago and received a proposal for full floor of 15,000 square feet in a Class A building at around $40 per square foot.

By advising his client to wait, Mr. Rosen was able to revisit the same prop-erty six months later, securing a letter of intent from the landlord for $29 per square foot for the same space.

This is not all. Mr. Rosen also was able to secure a

bundle of incentives that included the use of a 1,200 square foot storage and work

s h o p th rown in the deal for free, 2 months free rent,

a turnkey construction allowance val-ued at $25 per square foot, expansion rights, and even an option to reduce the amount of space early if the tenant’s needs change during the lease term.

Ross Selinger of ITRA Long Island had to take a more aggressive approach to secure a reduced rent for one of his clients. Selinger was able to negotiate a reduction in rent from $36 per square

5Real EstateStrategiesI s s u e X X V I

will negotiate lower rentals, escalations, new construction allowances, free rent, lease extensions and space reductions to encourage early renewals. This is where exclusive ITRA tenant represen-tatives, who never represent landlords, can use their unconflicted, objective market knowledge to negotiate better terms for office tenants. Here are a few examples of what ITRA offices across North America are negotiating on behalf of tenants:

ITRA’s Andrew Stein and Bert Rosenblatt have just completed a renew-al of lease for a client in Manhattan. Negotiations started off 12 months ago at $73 per square foot, which at the time was $7 per s q u a r e foot less than the a s k i n g price. As negotiations progressed, the landlord got more and more aggressive. Now 12 months later the transaction has just closed at a $53 per square foot rent for 15 years with the tenant securing 4 months free rent and even securing exterior signage on the building, a rare and valuable asset in NYC.

On the West Coast, Mark Rosen, ITRA San Francisco, reports that landlords in

house/distribution, or manufacturing facilities. Certain sale/leaseback prop-erty buyers will consider build-to-suits.

Economic ConsiderationsLease terms typically range from 10-15

years. Most buyers prefer leases increas-es in the rent ranging from two to four percent annually. Most sale/leaseback transactions are for single-user buildings, buyers prefer pure triple-net leases.

Transactions are typically based on then existing market capitalization rates. While market cap rates may vary slightly at any time, the cap rate for a specific transaction will depend on the size of the property, the type of property, the location, and the financial strength of the tenant.

While many terms and conditions are negotiable, little flexibility may be found

foot to $26 per square foot. His strategy was to survey the market with his ten-ant, forcing the Landlord to compete.

Only an experienced tenant repre-sentative who is out there every day can understand the rate of change and exact-ly how it can be used to the benefit of office tenants. At ITRA, exclusive tenant representation is not just our business, it’s our only business.

in meeting all the Financial Accounting Standards Board (“FASB”) requirements to qualify as a sale/leaseback. The fur-ther that either purchase price or rent gets from market reality, the greater will be the chance that the transaction will not meet generally accepted FASB principles as a sale/leaseback transac-tion and it instead will be treated as a capital lease.

Because the seller/lessee will be enter-ing into a long-term lease, it is essential that the assistance of a knowledgeable ITRA real estate negotiator be utilized for the negotiation of both the purchase contract and the lease. Negotiators on both sides must be intimately familiar with the unique accounting require-ments of a sale/leaseback transaction, and the complexities of sale/leaseback agreements.

Financing a Healthier Balance Sheet Continued from page 2

It’s a Great Time to Negotiate Better Lease Terms Continued from page 1

ITRA Expands inNew York City

I TRA has expanded in the New York City market with the addition of ITRA/Vicus Partners, which will

serve the Manhattan Downtown market (below 14th Street).

The principals of ITRA/Vicus Partners are Bertram Rosenblatt and Andrew Stein, who have combined to lease more than a million square feet of space to an impressive roster of law firms, non-profits, hospitals and assorted private sector businesses. Clients represented include The Children’s Defense Fund, a division of General Electric, the New York Convention and Visitors Bureau, The Breeder’s Cup and Carnegie Mellon University.

ITRA/Vicus Partners may be reached by phone at +1 212.880.3747, or by email at brosenblatt@itraglobal.com, or astein@itraglobal.com.

Only an experienced tenant representative can understand

the rate of change and how it can be used to the benefit of office tenants.

ITRA provides corporate real estate services for tenants and buyers throughout the world.

Ten Post Office Square

Boston, MA 02109-4629

phone +1 (617) 886-9300

info@thestevensgroup.com

www.thestevensgroup.com

For Tenants, It’s a Great Time to Negotiate Better Lease Terms ................................ page 1Financing a Healthier Balance Sheet ....................................................................................... page 2Two Different Companies Relocate HQs Together ............................................................. page 3Market Surveys ..................................................................................................................................... page 4ITRA Expands in New York City................................................................................................... page 5

I s s u e X X V I

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Asia/Pacific Rim

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RichmondSan DiegoSan FranciscoSilicon ValleySpokaneSuburban MarylandTampaTorontoTucsonWashington D.C.Westchester County

LATIN AMERICABogotaBuenos AiresCaracasCuritibaLimaMexico CityMonterreyPonceSan Jose San JuanSanto DomingoSao Paulo

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BrusselsDublinFrankfurtIstanbulLondonMadridParis

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